Tag Archives: Insurance executives

The Question is Why Do They Keep On Proving It?

There is a well established mantra in the insurance industry that says, “Any change is a threat!” This attitude is to be taken seriously by any self-respecting insurance executive and is, in fact, lesson number one for individuals who are taking “Insurance Executive 101” classes. In the insurance industry, change is to be resisted the way a politician shuns candor. Of course, there is good reason for this rule. Most insurance executives are not smart enough to be able to deal with change, so they should do everything they can to ignore or avoid it. (Politicians shun candor in order to get elected and re-elected.)

It’s that kind of behavior that has convinced most people that insurance executives tend to be only smart enough to be, well, insurance executives. For that reason most business schools segregate graduates into three groups. The top 50 percent are directed into a variety of options, the third quartile is encouraged to go into banking and those in the bottom of the class are pushed toward insurance management. (Class members caught cheating are encouraged to become lawyers.)

You think I am kidding about this? Well, think about this. AIG, just a few years ago the largest insurance company in the world, became bankrupt and had to be bailed out by the government when the executives of the company made the decision to provide insurance to gamblers, i.e. Wall Street high-flyers. The insurance offered by AIG guaranteed to make up for any losses the gamblers might incur; no matter how risky their gambles might be.

Can’t you just see all those Wall Street guys sitting around their favorite drinking hole, guffawing and mocking these insurance guys for their stupidity? All the while, the AIG executives were patting themselves on the back and thinking about the bonuses they would get for selling so much “insurance.”

Of course, the insurance executives of AIG were not alone. The executives of Hartford Insurance and those of a number of other companies came up with this great idea to offer insurance that would guarantee to the purchasers of variable annuities that the value of the product would never be lower than the highest value of the policy. (How smart do you have to be to come up with an idea like that?) No matter how low the investments backing the policy might fall, the insurance company would guarantee to pay out what their highest value had been. Like AIG, Hartford and many of the other companies had to be bailed out by the government to prevent insolvency.

Would you have made deals like these? If not, then sorry but you don’t qualify to be an insurance company executive.

Everyone was upset when the banks were bailed out because, “They were too big to fail.” What people didn’t notice was that insurance companies were bailed out because, “They were too stupid to fail.”

But, getting back to change. The insurance industry executives clearly demonstrated their reticence to change – even if it’s to their benefit – during the recent debate over health care reform.

The insurance industry marshaled their forces and spent over $30 million dollars attempting to defeat the recently passed health care reform. The industry spread stories about “death panels,” rationed coverage, loss of choice and higher costs if the reform passed.

This action is consistent with the history of the insurance industry in its efforts to resist change. Fearful that Social Security would eliminate the need for private insurance, the industry fought its enactment tooth and nail, only to discover that Social Security was actually a boon for the insurance industry. Thirty years ago the insurance industry lobbied heavily against major pension reform legislation, only to discover that the new pension laws ended up creating twice as much business for the insurance industry.

Now, despite the efforts of the insurance industry, the health care reform has passed. The insurance industry is bemoaning this horrible legislation and how it will be so bad for them. However, despite the claims of President Obama that the health care reform will “put a check on the insurance industry,” the fact is that this latest change will actually be another profitable opportunity for the industry.

Consider these factors.

The health care reform did not adopt a “single payer” type program. Contrary to the prevailing viewpoint, this new plan is not a “government bureaucratic boondoggle,” but a private industry boondoggle. The legislation mandates that those who do not have health care must purchase it. With no “public option” to create competition, this means that the insurance industry is presented with the potential of 20 million new customers. Most employers are now required to make health care available to their employees. In both of these cases the government will provide either direct payments or tax incentives to help pay for the coverage.

What could be better for the insurance industry than for the government to require that people buy their product and provide either part or all of the funds to pay for it?

A lot was made of the provision to eliminate “pre-existing conditions” as a reason to decline insurance coverage. But it is not like the insurance industry is going to be stuck with these difficult risks. Special state “assigned risk” pools are to be created (much like poor risk auto drivers) to provide coverage for those with pre-existing medical problems. This approach, while providing coverage to those who can’t get it from insurance companies, also serves to make it easier for insurance companies to increase their profits.

So, once again, these insurance company executives prove that stupid is that stupid does.

And the Moral of the Story …

Maybe sometimes it’s smart to be stupid.

You don’t think the insurance company executives are smart enough to employ the “Br’er Rabbit” style of politics do you? You remember when the fox caught the rabbit and while holding the rabbit up by his ears, fell for the pleading of the rabbit to do anything to him, “except to thrown him into the briar patch.” Of course, the briar patch was where he lived and wanted to be.

In this case we have the government catching the “Br’er Insurance Industry” failing to provide effective health coverage to all Americans. The insurance industry is made the bad guy in the health care debate and battered from pillar to post, by all sides. Surely this will be the end of the road for the health care insurance industry. The insurance industry screams the evils of the reform and begs for its failure, knowing all along they will turn out to be the big winners if the reform passes.

Are the insurance industry executives smart enough to know that if they favor a reform plan that it will fail? Are they smart enough to understand that only if they oppose a plan that will actually help them will it stand a chance of passing?

Can they be that smart? Nah … It just proves what I said all along: Stupid is as stupid does!

On Sunday, April 13, the NBC show Dateline devoted its entire program to exposing deceptive and confusing sales tactics of insurance agents selling insurance annuities. Specifically Dateline highlighted what is called an “equity indexed annuity.” The only problem is that Dateline used deception and confusing half-facts in an effort to prove their bias.

There is no question that there are “bad agents” selling insurance annuity products. These agents should be discovered and driven from the industry. However, Dateline attempted to give the impression that the few agents they “exposed” by hidden cameras were representative of the thousands of agents selling the products. That is a little like saying that there are bad lawyers out there so all lawyers are bad. (Well, maybe in that case it is true!)

In fact, Dateline failed to do what they accused agents of doing; and that is providing full and complete information to the consumer so they can make informed decisions.

The primary “abuse” Dateline focused on was the failure of the depicted agents to fully disclose the penalties that would be imposed if the policyholder were to surrender the annuity. Dateline talked of penalties as high as 20 percent and extending for up to 16 years. What they conveniently failed to disclose is that these penalties decline rapidly over time and even more important that most of these policies offer flexible options to withdraw funds in an emergency, with no penalty at all.

Dateline constantly compared a bank savings account, which is a short term demand deposit, with annuity products which are long term in nature. Of course, that is the proverbial “apples and oranges” comparison. Dateline harped on the fact that bank savings accounts have no penalty for withdrawing the funds, while all annuities applied “stiff penalties” for such action. The syllogistic conclusion offered by Dateline was that therefore all annuities are bad. Continue reading →

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If history has taught us anything it is this: Progress or perish. Make history or you are history. Gone. Maybe even forgotten.
This was true of the great empires. They all learned, for better or sometimes worse, that individuals and institutions can make prodigious contributions to history by shaping the future, but when they failed to continue to make history, they became history: We know them now for what they did, not what they are doing.

ABOUT BOB MacDONALD

Founder of LifeUSA Insurance and retired CEO of Allianz Life, N.A., Bob MacDonald regularly blogs with timely, hard-hitting comments on almost every business subject from entrepreneurism to better management, smart business leadership, government and politics, and of course, the life insurance industry.

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Bob MacDonald, founder of LifeUSA Insurance and retired CEO of Allianz Life, N.A., regularly blogs with timely, hard-hitting comments on almost every business subject from entrepreneurism to better
management, smart business leadership, government and politics, and of course, the life insurance industry.